The compensation numbers are straight into the stratosphere:
Richard D. Fairbank, chief executive officer of Capital One Financial Corp. - $249.42 million in 2005.
Terry S. Semel, chief executive of Yahoo Inc. - $230.55 million.
Carol A. Ammon, chairwoman of Endo Pharmaceuticals Holdings Inc. in Chadds Ford - $171.7 million.
Most of the millions these executives pocketed reflect the value of stock options they exercised last year - not their weekly paychecks.
Fairbank, for example, earned a combined salary and bonus of zero, and Semel's Yahoo cash compensation was $600,000. Ammon, who retired as CEO May 20, 2005, did not even earn $300,000 in salary.
Corporate boards have used stock-option grants to reward managements that run their enterprises in ways that produce higher stock prices and therefore higher returns for investors. But the enormous gains realized by some CEOs from such mega-stock-option grants have given pause to even some of those institutional investors who have benefited from higher stock prices.
This year, for the first time, the Financial Accounting Standards Board, which sets the rules for how businesses keep their books, required companies to record the expense of stock options granted to executives on company income statements and not bury the information in the footnotes.
But the trend toward reporting these numbers actually started a few years earlier, as companies saw that the rules would change, said Mary Ellen Carter, an assistant professor of accounting at the University of Pennsylvania's Wharton School.
Partly as a result, use of restricted stock grants as a compensation tool has begun to rise, while the number of CEOs receiving stock-option grants dropped, said David Cross, a consultant on senior executive compensation at Mercer Human Resource Consulting's Philadelphia office.
Cross said that compensation committees also found that some executives preferred the restricted stock grants to options because the underlying value of the stock remains, even if the share price goes down. Meanwhile, setting target dates when the executive can sell the stock provides an incentive for performance.
That fits in with another trend.
More companies are linking performance with executive pay, Cross said. In 2005, performance-based long-term incentives were used by 57 percent of the 350 companies surveyed, up from 51 percent in 2004 and 37 percent in 2003, Cross said, quoting a study conducted by Mercer for the Wall Street Journal.
